Subject: Strategy - Buying on Margin

I have used margin debt to leverage my returns several times this
year, with successful results. At no time did my margin debt exceed
25% of my net account equity. This is my personal comfort level, but
yours may be higher or lower depending on your risk tolerance, your
portfolio return vs. the interest rate on your debt, and your degree
of bullishness about your investments and general market conditions.

If I am using margin, I have tighter stop-loss limits. How much tighter
is determined by the amount of debt, the interest rate on the debt, and
the historical volatility of the stock.

Here are a few more suggestions:

Never use margin unless you follow the market and your
investments on a daily basis, and you consider yourself well-informed
about the factors that could influence your asset value.

Do not use margin debt as a long-term investment strategy.

Have a clear idea of how long you plan to maintain the margin debt.

Always have cash reserves outside of your brokerage account that
exceed your margin debt, so that you could pay off the debt at any time,
if necessary.

If you maintain the debt for more that a few weeks, contribute
cash to your account on a monthly basis, so that you are paying off
the debt the same way one would pay off a credit card.

Start with a small amount of debt relative to your account (5 -
10%), and use this as a benchmark for future actions.

Have a stop-loss limit and a target sell price for all of the
investments in your leveraged account. Stick with your targets!

Do not let the chance of a margin call exceed 5%. The assessment of
this probability should be made and adjusted regularly.

Learn the techniques that the professional hedge fund managers
use in maintaining leveraged investments. This information is
available for free at the library.

If this seems like too much work, then do not use margin. These are just
my opinions as an individual investor. Whether or not you decide to use
margin is a personal decision.

I consider margin debt to be a tactic rather than a strategy. It is
not suitable for a long-term, buy-and-hold investor. The tactic has
worked for me so far, but I know several bright individuals who have
been burned by it.